Antofagasta Pays ‘Punchy’ Price in $1 Billion Barrick Deal

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Antofagasta Plc paid a hefty price for the $1 billion stake in a Barrick Gold Corp. copper mine in Chile, analysts said. The stock fell to a six-year low.

“This looks like a pricey deal,” Cailey Barker, an analyst at Numis Securities Ltd. in London, said in a note on Friday. “The price is punchy. Barrick looks like the winner.”

The Santiago-based company agreed on Thursday to buy a 50 percent stake in the Zaldivar copper mine and will operate it as a joint venture with Barrick. Antofagasta will pay $980 million in cash upon closing and $25 million in additional payments over the next five years, Barrick said in a statement.

Copper slumped 17 percent this year on concern supplies will remain ample as demand slows in China, the biggest user. Antofagasta, the $8.5 billion miner controlled by Chile’s Luksic family, has been looking to add mines to help boost its output of the metal used in wires and pipes.

“The deal looks incredibly expensive on our estimates,” Nomura International analyst Patrick Jones wrote in a report. The buy “will likely disappoint the market, which was expecting Antofagasta to make an acquisition outside of its home country.”

The purchase will reduce the funds the company has available for dividends, according to Investec Plc.

2009 Low

Antofagasta dropped 4.1 percent to 557 pence by 12:51 p.m. in London, the lowest since June 2009. The stock has declined 23 percent this year. Copper prices are near a six-year low on the London Metal Exchange.

Antofagasta “paid a price that assumes significantly higher copper prices or operational improvements at Zaldivar,” Jefferies LLC analyst Christopher LaFemina said in a report. “While the multiples may indicate that Anto paid a high price, the demand illustrates the rarity of opportunities to acquire major copper assets in stable regions.”

Zaldivar, in northern Chile, is expected to produce 230 million to 250 million pounds of copper at cash costs of $1.65 to $1.95 a pound, Barrick said. Proven and probable copper reserves from the mine as of December were 5.6 billion pounds.

China Molybdenum Co. and BHP Billiton Ltd. were among the bidders for the stake in the final round, people familiar with the matter said earlier this month.

Antofagasta said this week that first output from its new Antucoya copper mine would be delayed until later this quarter, leading it to cut its full-year output target.